Property Tribunal case update on costs awards
Property Tribunal case update on costs awards
The importance of pre-action correspondence was highlighted in the Upper Tribunal appeal case of Zaid Alothman Holdings Ltd and 75 others v Better Intelligent Management Ltd [2024]. The Respondents in the case were ordered to pay the Appellant’s costs under Rule 13 as they had brought the proceedings unreasonably. A large part of the decision related to the failure to send a letter before action
Background
The case involved Phoenix Place, a purpose-built Building providing student accommodation. The Building contained two types of units: 74 self-contained studios and 274 ensuite bedrooms grouped into clusters with shared kitchens and common rooms. The units were held on long leases by investor landlords and let out to students by agents.
Better Intelligent Management Limited (the First Respondent) acquired the freehold of Phoenix Place in April 2020 and Phoenix Place (Liverpool) Management Limited (the Second Respondent) has been responsible for management of the Building since 2019.
The case unfolded as follows:
The Respondents issued interim service charge invoices in January 2022 to all of the leaseholders after identifying that all of the windows in the Building had to be replaced as a matter of urgency.
The invoices were not paid, and no response was received from the leaseholders.
By June 2022, the matter had escalated and the Respondents issued consultation notices under section 20 of the Landlord and Tenant Act 1985 in relation to the replacement of the windows.
A group of leaseholders (the appellants) instructed Mishcon de Reya on their behalf who wrote to the Respondents in mid-July 2022 informing them that they had been instructed.
The Respondents did not reply, but instead their solicitors wrote to all of the leaseholders in late July 2022 stating that the respondents were now entitled to re-enter the units to undertake the works and recover the cost as a debt.
The Respondents then submitted two joint applications to the First-tier Tribunal against all 348 leaseholders on 16 August 2022. The applications were for (i) determination pursuant to section 168 of the Commonhold and Leasehold Reform Act 2002 that the leaseholders were in breach of covenant for failing to repair their windows and (ii) dispensation from the consultation requirements under section 20ZA of the Landlord and Tenant Act 1985.
The First - tier Tribunal’s Decision
The FTT considered that the units concerned were not “dwellings” for the purposes of the Commonhold and Leasehold Reform Act 2002, and therefore, the FTT did not have jurisdiction to determine the applications. Both parties agreed and therefore the applications were dismissed by the FTT.
A group of leaseholders then applied for a costs order under Rule 13 of the Tribunal Rules on the basis that:
the Respondents had acted unreasonably in bringing proceedings against the leaseholders of the cluster units given that the FTT had no jurisdiction to determine the applications (which the respondents had admitted); and
the respondents had failed to send a letter before action and had they done that, the issue of FTT’s jurisdiction could have been agreed and costs of the proceedings would have been avoided.
The FTT disagreed and refused to make an order for costs and the leaseholders then appealed this decision to the Upper Tribunal (the “UT”).
The Upper Tribunal’s Decision
Martin Rodger KC, Deputy President of the UT, granted permission to appeal and noted that the question was “whether professionally represented parties should be expected to avoid unnecessary Tribunal proceedings by first seeking to identify such common ground as may exist through pre-application correspondence, and whether commencing tribunal proceedings without first sending a letter before action is unreasonable conduct.”
The UT Judge, Elizabeth Cooke, held that the Respondents had acted unreasonably in bringing proceedings which the FTT had no jurisdiction to determine. The Respondents had been aware that the FTT would not have jurisdiction and had brought the proceedings on an “out of caution” basis whereas they should have first tried to agree the position on jurisdiction with the leaseholders’ solicitors.
The UT acknowledged that it may have been difficult to agree the position on jurisdiction with all of the leaseholders as they were not all represented and some of them lived abroad. However, that was not a reason to not send a letter before action “since to do so would be no less practicable than to serve service charge demands, for example, or indeed the FTT proceedings themselves”.
The UT held that the “course of action taken by the respondents caused unnecessary stress and expense” and it “failed to meet the standard expected of parties who have taken legal advice”. In the circumstances, the Respondents were ordered to pay the appellants’ costs of the FTT proceedings.
